A STUDY ON RISK HEDGING STRATEGY: EFFICACY OF OPTION GREEKS
Financial Derivatives are innovative instruments in the financial market. Derivatives have a great deal of use in risk management. A judicial use of derivatives in right proportion enables a corporate manager to minimize risk and optimize return. Basically, there are four categories of derivatives i.e. Forward, Futures, Options, and Swaps. In India, futures and options are commonly used. In option derivative, the premium which is paid by the option holder to the option writer is known as option premium or option price. For determining the theoretical price of the option, the most appropriate model i.e. Black Scholes option pricing Model. This option pricing model is well accepted throughout the world. If the theoretical price of an option contract deviates significantly from its actual price, then the financial market will be seriously disturbed. This paper studies the efficacy of commonly used Greeks such as Delta, Gamma, Theta, Vega, and Rho and their significance in managing various types of risks associated with an option contract. Further these five Greeks are taken only for European Option within the Black Scholes Model framework. The scope of the study covers monthly option pricing and Greeks of ITC, HDFC and RELINFRA for the month of January 2017. Lastly, an attempt has been made to explore the implication of these Greeks for managing the risk associated with an option contract.
Black, F., & Scholes, M. (1973). The Pricing of Options and Corporate Liabilities. Journal Of Political Economy, 81(3), 637-654. http://dx.doi.org/10.1086/260062
Paunovic, J. (2014). Options, Greeks, and risk management. Singidunum Journal Of Applied Sciences, 11(1), 74-83. http://dx.doi.org/10.5937/sjas11-5820
Mohan K, M., & Hemalatha, A. (2016). A Study on Awareness About Investment In Derivatives Among Government Employees In Calicut District Of Kerala. Abhinav International Monthly Refereed Journal Of Research In Management & Technology, 5(2), 1-8.
Prakashyalavatt , 2015 “A study on strategic growth in India financial derivatives market”, International Journal of Recent Scientific Research, vol. 6, Issue, 10, pp. 6589-6593
Chen, R., & He, W. (2015). The Valuation of Compound Options: A Correction and an Extension. The Journal Of Derivatives, 22(4), 92-104. http://dx.doi.org/10.3905/jod.2015.22.4.092
Sanjana Juneja, 2013. Understanding the Greeks and their uses to measure risk, International Journal of Research in Commerce, IT and Management, 3(10).
Thakker, H., & Attarwala, A. (2016). Testing the Efficiency Of The Binomial Option Pricing Model In The Indian Equity Options Markets For The Period 2010 To 2015 Using The Nifty Option. Abhinav National Monthly Refereed Journal Of Research In Commerce & Management, 5(11), 29-36.
Yamin Li and Geral Salkin, 2002, “Hedging option portfolios without using Greeks”, Derivatives Use, Trading & Regulation, ABI/Inform Global, page 362.
Swain P.K.- 2012 “ Fundamental of financial derivatives”, 1st edition. HPH Pvt. Ltd.
Varma J. R. 2010 “Derivatives and Risk Management, 3rd Edition. Mc. Graw Hill Education Pvt Ltd.
- There are currently no refbacks.